Homes often represent the biggest asset and area of expense for clients, making it crucial for tax professionals like my Tax Problem Solver team to help homeowners unlock savings and income opportunities in their own backyards. Here are five tax strategies for real estate and homeownership for you to consider:
Establishing a New Residence
Leaving a high-tax jurisdiction and relocating to a state with lower tax rates can be the starting point for substantial tax savings.
To establish residency and avoid extra tax burdens from the former state, you should adjust your estate plans, voter registrations, and car records. Enrolling children in local schools, finding new local doctors, joining clubs, and moving valuable household items to the new home are essential steps.
Additionally, it's important to be mindful of the time spent in the old state and maintain accurate records to support residency claims.
Property Tax Deduction
In states with lower income taxes, higher property taxes may be collected. The federal deduction cap of $10,000 for state and local taxes under the Tax Cuts and Jobs Act has reduced potential exemptions but not eliminated them. Property tax deductions are one of the most overlooked opportunities. Homeowners should ensure they are taking full advantage of these deductions to maximize their savings.
Qualified Personal Residence Trust
A qualified personal residence trust (QPRT) can help homeowners reduce the gift-tax hit from a property's appreciating value before leaving it to a beneficiary. This strategy is particularly effective for vacation homes, as it allows for the efficient transfer of real estate to the next generation. However, it's important to note that parents might have to pay rent to their children if the property is their permanent residence at the end of the trust’s term.
House Hacking for Tax Strategies in Real Estate and Homeownership
"House hacking" involves renting out a portion of a home to a tenant while the owner also resides there. This strategy is especially beneficial for multifamily properties like duplexes or triplexes, where owners can utilize deductions for mortgage interest and property taxes. The concept is growing in popularity, particularly in the Airbnb economy, as it allows owners to offset their mortgage payments through rental income while benefiting from real estate investment deductions.
Home Office Deduction for Real Estate and Homeownership
Small business owners who operate their businesses from home can benefit from home office deductions. These deductions cover expenses such as homeowner association fees and mortgage bills, tied to the amount of space used for the business. This strategy provides significant relief for business-related expenses, contributing to overall tax savings.
By implementing these tax strategies for real estate and homeownership, homeowners can achieve significant savings and optimize their financial situations.
We're Always Available to Give Advice on Tax Benefits
We can guide you to take advantage tax benefits for homeownership and/or real estate. And, of course, if you find yourself with tax problems of any kind, don't hesitate to contact us for help and guidance. That's what my team and I are here for.
You can contact me by one of the methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your specific issues or needs and determine your best solution. You can also click here to book a free consultation.
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